Trust Transfer Deed with an A/B Trust.

Asked over 1 year ago - Pasadena, CA

Mom and Dad established an A/B Living Trust. According to terms of trust, when one party passes, it splits and a B trust is to be funded, with 1/2 assets that become irrevocable. Mom passed two yrs. ago and dad never followed through to fund this B trust. A Trust Transfer Deed was performed, after mom passed, thereby making all assets revocable, noted per Certificate of Trust. Is there a breach here?
Thank you.

Attorney answers (4)

  1. Amanda Marie Cook

    Contributor Level 15

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    Answered . To add to previous answers, however, if the B trust was required to be funded with one half of the community property and all separate property of the decedent (which is very common), then you may have a stale trust situation. You should speak with competent counsel to determine whether the 1st death administration was properly handled, especially if it impacts your inheritance.

    THESE COMMENTS ARE NOT LEGAL ADVICE. They are provided for informational purposes only. Actual legal advice can... more
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    Asker
    Posted over 1 year ago.

    This was very helpful, thank you. B trust was required to be funded with half of community property, etc. Never happened. Dad was told what to do when mom passed, but declined and set up a new revocable trust instead; and I beieve this does impact all beneficiaries of inheritance.

    Amanda Marie Cook
    Amanda Marie Cook, Estate Planning Attorney - San Diego, CA
    Posted over 1 year ago.

    Yikes. Is your father still alive? If not, whoever is nominated as Successor trustee of his new, revocable trust likely ought to take all of the documents to an attorney and figure out what assets are where, how they are titled, and the distribution terms of the original trust. Often, the B trust is irrevocable upon the first death. The trustee of the new trust may need to petition the court for instructions.

    Michael Raymond Daymude
    Michael Raymond Daymude, Litigation Lawyer - Sherman Oaks, CA
    Posted over 1 year ago.

    An attorney needs to review both the original A/B trust and the newer trust. If you have a situation where there is likely to be a fight among the beneficiaries I suggest immediate mediation of any claims. Otherwise, the cost of litigation is likely to be substantial.

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    Asker
    Posted over 1 year ago.

    It appears since the newer trust TTD) is revocable, I'm not sure it can be viewed. Dad's attorney represents him, and it's private. After he passes, it would be too late to do anything? We need to investigate further. Thank you.

  2. James P. Frederick

    Contributor Level 20

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    Lawyers agree

    Answered . There is no way to say without reviewing the documents. It may be that the B Trust only needed to be funded, if there was more than the Federal Estate Tax exclusion amount in the trust. If the trust was worth less than that, it may have been completely appropriate to fund only the A Trust.

    James Frederick

    ***Please be sure to mark if you find the answer "helpful" or a "best" answer. Thank you! I hope this helps. ******... more
  3. Randall Bruce Klotz

    Contributor Level 4

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    Best Answer
    chosen by asker

    Answered . The first step is to determine if the Trust is (1) an A-B Mandatory Trust, or (2) A-B Disclaimer Trust. If mandatory, then the A and B Trusts must be funded. This would be so, even if the estate is exempt from estate taxes. Often this A-B Mandatory Trust is chosen in the case where there are children from a prior marriage, or other non-tax reasons. If, for some legitimate reason, the Surviving Spouse does not want or need the B Trust, he would need to seek approval from the family members (beneficiaries) and the Probate Court to revise the Trust. For example, assume the Trust Estate is only $100,000, there is no house, and dad needs this money for living expenses and medical care. With approval of the family, the Probate Judge has discretion to revise the Trust and eliminate the B Trust and its inherent administrative costs (that is, yearly tax filing, legal fees, and accounting fees).

    If the Trust is an A-B Disclaimer Trust, the Trustors understand that they MIGHT HAVE THEIR ORIGINAL TRUST DIVIDED into two sub-trusts upon the death of the first spouse, if the surviving spouse disclaims a portion of the estate for estate tax planning purposes. These will be the survivor’s sub-trust (“SURVIVOR’S TRUST A”) and the bypass or disclaimer sub-trust (“DISCLAIMER TRUST B”). Sometimes the B Trust is called Credit Shelter Trust or Family Trust.

    If it is created, the DISCLAIMER TRUST typically will hold either: (1) one-half (½) of the community property of our estate, plus one-half (½) of the quasi-community property (if any), plus all of the separate property of the deceased spouse, plus other amounts as specified in the Trust; or (2) the exemption equivalent amount for one spouse ($5,250,000 per spouse in 2013), less any used lifetime gift credits, whichever is less. You must look at your specific Trust language.

    It is generally the intent of the Trustors that any of their property that is not disclaimed by the surviving spouse shall pass to the SURVIVOR’S TRUST. Moreover, the SURVIVOR’S TRUST would be REVOCABLE by the surviving spouse, but the DISCLAIMER TRUST would be IRREVOCABLE.

    Here are some important facts about an “A-B Disclaimer Trust” election:

    1. The surviving spouse must make an election, WITHIN NINE (9) MONTHS AFTER THE DEATH OF THE FIRST SPOUSE, to disclaim or not to disclaim a given portion of the estate.

    2. If the surviving spouse CHOOSES TO DISCLAIM a portion of the trust estate, then the DISCLAIMER TRUST will be set up containing assets as disclaimed and allocated by the surviving spouse, with the help of his or her legal and accounting professionals.

    3. If the surviving spouse chooses NOT TO DISCLAIM, then all the trust property automatically will be allocated to the SURVIVOR’S TRUST.

    4. If the surviving spouse FAILS to make an election WITHIN NINE (9) MONTHS after the death of the first spouse, then the time to make an election will have passed, and the BYPASS TRUST will not be created. Thereafter, the whole estate will be allocated to the SURVIVOR’S TRUST. This would be the same as if the surviving spouse had initially decided not to disclaim.

    Here are some SIGNIFICANT RISKS with the A-B Disclaimer Trust:

    1. The surviving spouse MIGHT NOT DISCLAIM, whether it is due to insecurity, failure to attend to tax issues on the death of the deceased spouse, inadvertent “acceptance” of transfers from the deceased spouse, using money for personal use from certain accounts that were intended to be disclaimed, or poor professional advice.

    2. It is possible that the surviving spouse INTENDS TO DISCLAIM a portion of the trust estate and create the DISCLAIMER TRUST, but HAS NOT COMPLETED the process within the nine-month period.

    3. In the meantime, if the surviving spouse EXERCISES CONTROL over certain assets or accounts, this COULD BE DEEMED AN ELECTION to allocate those assets to the SURVIVOR’S TRUST, thereby making the surviving spouse’s later disclaimer ineffective.

    RANDALL B. KLOTZ, Esq.

    DISCLAIMER: This answer gives partial details for discussion purposes only. It is not intended to be a complete... more
  4. Steven M Zelinger

    Pro

    Contributor Level 20

    4

    Lawyers agree

    Answered . I agree with Mr. Frederick that his explanation is the most likely. The fact that you say "1/2" of the estate however gives me pause because usually this type of trust would be funded based on the federal estate tax exemption, state estate tax exemption, or a formula that relates to the estate tax in place at the time. I would take a copy of the trust, if you have it, to an attorney to review and determine what should have been done (or not done) and it certainly would help to know what assets Mom/Dad owned when Mom died.

    This is not legal advice nor intended to create an attorney-client relationship. The information provided here is... more

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